Office Supply to Shrink to 1990s Levels

Australia’s office market is on the road to recovery, despite fresh data from the Property Council of Australia pointing to a moderate uptick in office vacancy nationally. 

While market sentiment is indicating a much-needed recovery, the ongoing flight to quality is creating a void in its wake. 

The national vacancy rate increased from 15.2 per cent to 15.9 per cent in the six months to January 2026. 

This was driven mainly by recent completions across Australia’s major office markets, according to Property Council chief executive Mike Zorbas. 

“What we’re seeing nationally is a supply-led increase in vacancy from projects that started three years ago and are largely pre-committed,” Zorbas said. 

“Over the next five years a lack of new supply is set to underpin a recovery in office.

“The end phase of this cycle’s new completions has lifted vacancy across our major markets, while the appetite for high-quality office space continues to improve.”

New supply accounted for 1.2 per cent of CBD office vacancy increase, according to the Property Council data. 

Gross office supply is expected to shrink to well below historical averages over the next three years. 

CBD completions are forecast to average between 100,000sq m and 120,000sq m per six-month period, compared to the long-running average of about 240,000 square metres. 

Perth and Canberra were the only capital cities to record decreases in office vacancy in the period. 

Office vacancy by city

Knight Frank national head of leasing, Andrea Roberts, believes the data doesn’t reflect the more positive sentiment felt across office markets going into 2026. 

“Tenant demand remains focused on the best located assets which deliver on great wellness amenities, transport connections and food and beverage. [There is also] a focus on landlord-provided third spaces to cater for ad hoc demand for special events and as a release valve for peak occupancy,” Roberts said. 

“Australian markets continue to face a scarcity of new buildings on the horizon, with supply over the next five to six years well below historical averages. 

“This lack of supply will drive rental growth during this current year, with more pressure to come.”

CBRE head of office and capital markets research Tom Broderick said net absorption in prime grade office was at its highest ebb since 2017. 

“The tenant contractionary phase has come to an end,” Broderick said. 

“While 2025 observed elevated supply delivered to the market, the next five years will be the lowest period of office supply since the late 1990s. This outlook is helping to drive rents higher due to a combination of declining vacancy and high economic rents.”